Opinion: Mass layoffs only serve to destroy morale and productivity

Elon Musk holds up a chainsaw onstage during the Conservative Political Action Conference on Feb Photo by Nathan Howard Reuters Employers have declared over job cuts in the highest level since and multiple corners of the economic activity are hurting Tech and retail layoffs are on track to hit numbers not seen since the beginning of the pandemic and the regime leads all sectors in job cuts this year nearly all attributable to the cost-cutting effort of President Trump s Department of Executive Efficiency or DOGE More cuts are likely if the President s One Big Beautiful Bill passes Layoffs have become a common business practice the widely held presumption is that they lower costs and benefit organizations But is this true Research by social scientists shows there is little evidence that cutting jobs leads to stock price increases or higher sales and earnings In fact research indicates long-term performance literally declines after layoffs which have negative effects on the physical and mental robustness of workers and that there are other more effective techniques to increase efficiency and help ailing organizations get better There are several reasons why layoffs do more harm for companies than good The first is that the causes of the usual systemic problems that lead to business decline from lack of fiscal discipline to poor leadership develop over years and aren t solved by getting rid of employees The second is that layoffs cost money severance packages deferred compensation and promotion services for departing employees The third is that companies cut people not work which means layoffs lead to work disruption lost productivity lengthy learning curves and other costs as surviving employees deal with new arrangements and an increased workload Fruitful organizations ward off such woes by being disciplined They don t allow themselves to get into a position where mass layoffs are necessary One company I worked for had a way of life of strong cost controls You didn t add headcount or spend money without running a gauntlet of approvals to ensure the capital was addressing a strategic priority As a part of a long-term planning effort there my group helped classify company capabilities into critical tied to competitive advantage and sponsorship capabilities We then classified all jobs into these groups If the company was going to make new investments or hire more personnel they needed to bolster its critical capabilities We also kept costs low in techniques that were less disruptive to the workforce than layoffs For example we centralized promotion functions in finance human tools and information mechanism and or moved them to lower cost locations and shifted headcount to third-party manufacturers We often moved affected employees to open roles within the company or shifted their employment to outside vendors or partners to cut costs Triumphant companies also make strategic changes They exit underperforming businesses close less productive facilities or sell off assets that no longer fit their strategy And they often involve their employees in cost reduction efforts from the beginning At this same company my group created a effort modeled after General Electric s famous Work-Out operation to reduce costs by bringing employees and managers together to address critical problems Similarly suggestion systems and gain-sharing programs which allow employees to receive a share of the savings they create help employees feel personally invested in lowering costs Research my own and others shows these efforts and others like outsourcing and offshoring have far less detrimental effects on employees than mass layoffs Employees understand why these changes are being made But sometimes even triumphant organizations experience business disruptions and can t avoid cutting jobs e g a reaction to a global pandemic or aggressive tariffs I ve been involved in numerous of these efforts over the years including at the same very disciplined company I worked for When painful cuts are necessary triumphant companies work hard to mitigate their ill effects Social scientists highlight four forms of justice that affect employee reactions to decisions like layoffs distributive justice are outcomes fair procedural justice is the decision-making process fair interpersonal justice are employees treated with dignity and informational justice are explanations clear One such effort at fairness came at Nokia in when their mobile phone business failed and they needed to lay off people at home in Finland and around the world Nokia had a painful experience restructuring after a plant closure in and they required to do better this time They implemented a scheme called Bridge to ensure employees felt the process was fair and those who were laid off had a soft landing Overall of Finnish participants and of global participants were satisfied with the operation Nokia s layoffs were completed without labor actions in any of the participating countries and without sacrificing product quality new product sales and revenues or employee engagement One way companies have incorporated distributive and procedural justice is to allow employees to make their own decisions via buyouts In addition instead of relying on periodic mass layoffs companies make local organizations accountable for staying lean by implementing rigorous headcount controls One company I worked for required units wanting to cut jobs to submit their proposal to a committee for approval which made sure they followed the right process My group also created metrics to help units identify employees to be cut starting with length of operation and performance which reduced bias ensuring managers used at least various of the same criteria and standards Interpersonal justice was also a central concern at this company Before cutting employees we tried to give them priority for open internal positions or place them with third-party partners We relieved affected employees from current responsibilities so they could focus on their job search This company also created a career center to endorsement employees providing counseling services helping with networking outplacement and resume writing and running upskilling and reskilling programs to qualify for jobs in other areas within the company Completely the company provided those ultimately separated with generous severance packages Informational justice is the final key to making layoffs feel more fair Where I have seen this done well companies create a dedicated squad to manage communications They identify stakeholders craft key messages and use multiple media to deliver messages in-person and virtual meetings town hall and one-on-one meetings presentations emails videos etc And managers and HR staff are trained to have local discussions with their staffs and those affected No one likes layoffs not the managers who carry them out or the affected employees But preventing them or managing the process well can set people and companies up for continued employment and success in the future Alan Colquitt is an organizational psychologist advisor and consultant and a former talent management executive at Procter Gamble Eli Lilly and Company and John Deere This was written for Z calo Society Square an ASU Media Enterprise publication Want to submit a letter to the editor guest column or opinion piece Find our guidelines and submission form here